Price-fixing in freight forwarding not just alive but encouraged

PUBLISHED : Monday, 07 August, 2006, 12:00am
UPDATED : Monday, 07 August, 2006, 12:00am

Question: What do our bureaucrats say when they see a cartel?

Answer: 'Cartel? What cartel? No cartels here. Go away.'

LAST YEAR, OUR most notable corporate gadfly, David Webb, chanced across a circular from the Hong Kong Association of Freight Forwarding and Logistics (Haffa), setting out for all members a detailed list of prices to be charged customers.

He immediately alerted the government's Competition Policy Advisory Group (Compag) - 'Dear Sir/Madam, how heart-warming it is to see that price-fixing is alive and well and blatant in the freight-forwarding agents' cartel (sorry, association) whose members handle 90 per cent of all air cargo passing in or out of Hong Kong. They are quite open about it ... Please investigate this complaint ...'

He now has his reply from Compag - 'complaint not substantiated'.

It is an interesting reply.

It is full of the lamest excuses for allowing cartels to operate and actually substantiates the complaint while claiming to do the opposite. Here are a few gems from it:

'The published list of charges is the outcome of consultation with the users of the services.'

Were these consultations about price? I suspect that they consisted only of Haffa asking shippers how much business they expected to do next year and then setting its prices on the basis of these forecasts. To talk price with users is to negotiate with them. This is something to avoid if you want to rig prices.

'Specifically, shippers through the HKSC [Hong Kong Shippers' Council] are involved in the discussion every time Haffa proposes a review of the charges.'

Guess whom the Hong Kong Shippers Council lists in No4 position among its 15 founding members. Yes indeed, that would be Haffa itself. Well, blow me down. We seem to have a cosy relationship here.

But I confess that I still don't understand it. The shippers' council is always quick to make accusations of price rigging in the terminal handling charges at our container port. Why then is it so meek about price rigging by freight forwarders? I'm sniffing for rat here. I don't smell it yet but this seems a pretty good place to sniff.

'HKSC also considered that the charges contributed to price stability and economic efficiency.'

Now this is the crown jewel among these gems. Price stability and economic efficiency is the standard excuse given by cartels everywhere for price-fixing. It's a lie of course. This form of price stability invariably means price gouging and the one thing it does not produce is economic efficiency, quite the opposite.

I can see why Haffa would try it on, of course, but I simply cannot understand why the shippers' council should be happy to wear it, too. Why not wear it at the container port then, fellas?

Most of all, I cannot see why Compag should so blithely pass it along to Mr Webb without remark.

Okay, okay, Compag was set up as a public relations trick to fool foreigners into thinking that we have their sorts of laws on fair competition when we don't. It's a toothless watchdog, no dog at all, in fact, not even a mouse and certainly not on watch. Even then, the mind boggles to see it sponsor such a feeble excuse for price-fixing. 'The published list is not mandatory.'

Of course, it's not mandatory. Cartels don't operate that way. All they need to do is have someone tell the members what the going rates are and everyone quietly falls into line.

But just ask yourself one question. If there really were a thriving free market in freight forwarding, would anyone send a detailed price list to competitors? Why invite them to undercut you that way? The fact that it was done is plenty strong evidence of a cartel.

In this case, it was also brazen. Haffa actually published the price list on its website. You will not find that done where real cartel-busters are at work. Cartels in such places can operate only on the word-in-your-ear approach. There is no need for that in Hong Kong, however, when they can openly laugh in our government's face.

'... Haffa only represents 13 per cent of the freight forwarding companies in Hong Kong ...'

Small freight forwarders may not be members, but from what I can see, the big ones are, and in that case, it is grossly misleading to measure market share by number of members rather than by the dollar value of the business they do.

I also refer you to Haffa's website which Compag obviously scorned to check. It features a pie chart claiming that its members account for 90 per cent of Hong Kong's external trade by air. I cannot tell you what the figure for sea trade is, but Haffa members obviously have absolute dominance at our airport.

You got 'em to rights, David, but why ask Compag to investigate? It will never do anything about price-fixing. It's an accomplice in the game.